April 19, 2023
Most in the legal profession, and many who have entered into contractual agreements, are generally familiar with a tool called “arbitration.” Arbitration is a proceeding which involves the settling of a legal dispute without a trial in court, open to the public. During arbitration, a third party listens to both sides of a legal disagreement. With the documents and evidence provided and the oral statements of each person involved, the arbitrator will issue a decision, much like a judge in judicial proceedings will issue a ruling resolving and ending the dispute forever.
There are many advantages to arbitration. Both parties agree to the arbitrator, which prevents any jurisdictional “home cooking.” The parties can agree to an arbitrator who has specific expertise in the area of the dispute. As a private enterprise, an arbitration can generally be scheduled faster than waiting for the court’s docket to clear up enough for a trial. There are generally no rules of evidence or restrictions in the presentation of evidence. For many, one of the most attractive benefits of arbitration is confidentiality – there are no public records connected to privately held arbitration. These, and other reasons factor in why parties to an agreement may opt to place mandatory arbitration provisions in the dispute resolution section of their contracts.
There are downsides to arbitration as well. If the value of the money or property in contention between the parties does not rise to a certain level, arbitration can be a more expensive option than simply trying a case in court. There are no appeals. Short of there being fraud in arriving at a decision, the litigants are stuck with whatever resolution is provided by the arbitrator. While contractually agreed upon arbitration is waivable, it must be waived by both parties, either expressly or implicitly through action. If one party seeks to waive the arbitration agreement, and another seeks to enforce it without having already waived it, the courts will often direct the parties to resolve their dispute through arbitration.
While most people enter into contractual agreements with the intention of upholding their end of the bargain, a well-drafted contract should lay out the terms of the process for resolving disputes that may arise during the course of performance, or lack thereof. When entering into a contractual agreement, individuals and companies should always review the dispute resolution section, check for an arbitration agreement, and decide whether having arbitration makes sense in the context of obligations of the parties and the factors discussed above.
If you wish to further discuss the pros and cons of arbitration, feel free to reach out to one of our many skilled attorneys.
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